## Executive Summary — Proposal to Distribute Remaining Windfall Gold Sales Profits (SDR 1.75 billion) ## Source details **Canonical URL:** [Executive Summary — Proposal to Distribute Remaining Windfall Gold Sales Profits (SDR 1.75 billion)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_091712.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_091712.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_091712.pdf.json) --- ### Key proposal and operational condition - Distribute the remaining gold sales windfall profits of SDR 1.75 billion to the membership to facilitate subsidy resources for longer-term sustainability of the PRGT. - Distribution to follow the indirect approach used for the partial distribution of SDR 0.7 billion (approved February 2012). - Distribution to be effected only after members provide satisfactory assurances that new amounts equivalent to at least 90 percent of the amount distributed — i.e., SDR 1.575 billion — will be transferred, or otherwise provided, to the PRGT. ### Directors’ views and context - Most Directors supported, or were open to, using resources linked to remaining windfall gold sales profits as part of a strategy to make the PRGT self-sustainable, possibly supplemented by contingent measures (including suspension of GRA reimbursement for PRGT administration and/or bilateral fundraising). - Alternatives considered: (i) adding resources to precautionary balances; (ii) investing them in the Investment Account’s endowment. Directors expressed a wide range of views and acknowledged risks. - History of windfall profit allocation preserved: - Total 2009–10 gold sales profits: SDR 6.85 billion. - SDR 4.4 billion placed in the special reserve (not available for distribution). - SDR 2.45 billion placed in the general reserve pending Board discussions; policy/analytical treatment has not included these reserves in the Fund’s precautionary balances. - Previous partial distribution (February 2012): SDR 0.7 billion approved to facilitate contributions of SDR 0.5–0.6 billion (end-2008 NPV terms) for the PRGT; contingent on Managing Director’s assessment that at least SDR 0.630 billion in new subsidy financing assurances exist. ### Progress on the SDR 0.7 billion distribution (as of September 14, 2012) - 123 members confirmed intention to contribute their share or an equivalent amount as subsidy resources to the PRGT, representing 86.62 percent of the approved distribution. - Of these 123 members: - 92 members (64.0 percent of the distribution) confirmed direct transfer of their share to PRGT subsidy accounts. - 17 members (9.6 percent) requested transfer to the Interim Administered Account pending domestic processes. - 11 members (17.7 percent) requested transfer to their SDR accounts, pledging to make an equivalent PRGT subsidy contribution. - Reaching the agreed threshold of 90 percent remains an urgent priority. --- ### I. Rationale, Current Capacity, and Projected Demand ### Objective - Use SDR 1.75 billion remaining windfall profits to facilitate PRGT subsidy contributions and boost long-term sustainability of concessional lending capacity. ### Current and projected lending capacity - 2009 LIC financing package target: increase concessional lending capacity to SDR 11.3 billion during 2009–14. - Commitments made under new PRGT arrangements during 2009–12: SDR 6.9 billion. - Remaining lending capacity through 2014: about SDR 2.2 billion annually. - Without additional resources, self-sustained PRGT (relying solely on remaining Trust resources) could permanently subsidize annual commitments of about SDR 0.73 billion (projections assume resumption of GRA reimbursement for PRGT administration from FY 2013). - Staff longer-term projections of demand: - Projected longer-term demand on average: SDR 1.2–1.9 billion annually in the two decades from 2014. - First decade demand projected: SDR 1.0–1.7 billion annually. - Implication: projections exceed projected self-sustained capacity of SDR 0.7 billion, implying large reductions in access after 2014 unless new concessional resources are identified. ### Effect of using remaining windfall profits (90 percent pledged = SDR 1.575 billion) - Adding SDR 1.575 billion to PRGT resources would: - Increase estimated self-sustaining capacity of the Trust to about SDR 1.1 billion annually from 2015 (if new commitments averaged SDR 2.2 billion annually in 2013–14). - Taking account of remaining capacity under the 2009 LIC financing package, self-sustaining capacity would be about SDR 1¼ billion from 2013. - Staff identifies SDR 1¼ billion in annual lending capacity as a base envelope for a self-sustained PRGT under the enhanced scenario. ### PRGT Reserve Account (RA) and sensitivity - Reserve Account balance: SDR 3.9 billion at end-June 2012. - Represents about 74 percent of total PRGT obligations. - Provides a loan coverage ratio of about 40 percent in the medium term (in line with historical average). - Estimations are sensitive to assumptions on: - Start date of self-sustained operations; - Reimbursement cost to the GRA for administering the PRGT; - Interest rate paid to PRGT lenders; - Investment premium (excess of interest earned on RA investments over rate paid to lenders); - Composition of lending arrangements (shares of ECF, SCF, and RCF). --- ### II. Proposed Three-Pillar Strategy to Make the PRGT Sustainable ### Pillar 1 — Base envelope - Establish a base envelope of about SDR 1¼ billion in annual PRGT lending capacity to cover concessional financing needs over normal periods. - Mechanism: gradually draw down PRGT subsidy accounts to zero while RA balances grow and later subsidize concessional lending. - Allows inter-year smoothing: build up capacity in low-lending years and draw down in high-lending years. ### Pillar 2 — Contingent measures - Activate contingent measures when average financing needs exceed the base envelope by a substantial margin for an extended period. Possible measures: - Bilateral fundraising supported by a broad range of membership, including traditional and non-traditional donors. - Suspension for a limited period of the reimbursement of the GRA for PRGT administrative expenses (per Executive Board Decision No. 14093-(08/32), April 7, 2008). - Modifications of access, blending, interest rate and eligibility policies to reduce subsidy needs. - Semi-annual PRGT financing updates and future LIC facility reviews to provide updates and triggers for activation. ### Pillar 3 — Principle of self-sustainability - Future modifications to LIC facilities should ensure demand can be met with resources available under Pillars 1 and 2 across plausible scenarios. - Upcoming reviews (e.g., PRGT eligibility, second stage review of facilities) should keep demand consistent with available resources over the longer term. ### Robustness - Strategy expected to be robust under a wide range of demand scenarios for short, medium, and longer term. - Contingent measures provide flexibility for prolonged periods of demand above the base envelope. --- ### III. Financial Trade-offs, Legal Framework, and Implementation Modalities ### Financial implications and trade-offs - Three primary options for SDR 1.75 billion: 1. Distribute to facilitate PRGT subsidy contributions (proposed). 2. Count towards precautionary balances. 3. Invest as part of the Investment Account’s endowment. - Precautionary balances: - Board increased medium-term target from SDR 15 billion to SDR 20 billion in April. - SDR 20 billion target expected to be reached in FY 2018. - Counting remaining windfall profits in precautionary balances would have reached target in FY 2017, but Directors judged current pace adequate. - Impact on reserves and income: - Proposed distribution would reduce the Fund’s general reserve (available for financial losses) but would not reduce current precautionary balances (the portion does not count toward precautionary balances). - Example trade-off: a 50 basis point increase in the margin for the rate of charge would, assuming full disbursement of approved access under arrangements approved to date, generate an additional SDR 1.75 billion in reserves over about four years. - Endowment considerations: - Endowment currently set at SDR 4.4 billion. - Adding remaining windfall profits would increase endowment to SDR 6.1 billion (about a 40 percent increase). - Fund’s income outlook: broadly positive and projected to remain so in the medium term; long-run illustrative estimates assuming endowment of SDR 4.4 billion remain broadly balanced. ### Legal framework for distribution - Staff proposes distribution from the general reserve pursuant to Article XII, Section 6(d). - Distribution must be made to all members in proportion to quotas on the date of distribution. - Requires Executive Board approval by a 70 percent majority of total voting power. - Distribution to be made in SDRs, unless Fund or member decides otherwise (Article XII, Section 6(e)). - Funding the distribution: - Fund to reduce amounts placed in the Investment Account (IA) by an amount equivalent to SDR 1.75 billion. - Reduction in IA principal requires Executive Board decision with 70 percent majority (Article XII, Section 6(f)(vi)). - IA currencies transferred to the GRA pursuant to Article XII, Section 6(f)(ix) for immediate use. - Distribution to members with overdue repurchase obligations will be made in the member’s own currency and will reduce the member’s overdue obligations. ### Adequate assurances and effectiveness condition - Distribution contingent on satisfactory ex-ante assurances that new PRGT subsidy contributions equivalent to at least 90 percent of distribution (SDR 1.575 billion) will be made available. - Managing Director to inform Executive Board once assurances received; then distribution effected. - Timing dependent on pace of member assurances. ### Modalities for member receipt and PRGT contribution - Members may instruct: - Transfer their share directly to the General Subsidy Account of the PRGT or to facility-specific subsidy accounts (ECF, SCF, RCF). - Receive their share directly before making new contributions or indicate they do not wish to contribute any portion. - Allocate their share among the above options. - Default if no response by effective date: deposit to member’s SDR account. - Interim Administered Account for Remaining Windfall Gold Sales Profits proposed pursuant to Article V, Section 2(b): - Purpose: temporarily hold members’ distributions upon request pending domestic processes. - Account open for three years or until no contributor resources remain, whichever earlier. - Resources may be invested at Managing Director’s discretion following same investment authority/procedures as PRGT-held resources. - Operations subject to standard Fund-administered financial services account terms. - Managing Director’s assessment of satisfactory assurances would consider: - (i) amounts members requested in writing to be transferred as PRGT subsidy contributions from their share of the distribution; - (ii) amount of other new contributions members have provided as PRGT subsidy contributions in light of the decision; - (iii) amount of other PRGT contributions members have given written assurances they will provide in light of the decision. --- ### IV. Decision Text Highlights, Governance of Administered Account, and Reporting ### Proposed Executive Board decision — core actions - Adopt decision by 70 percent majority of total voting power. - Key actions: - Adopt Instrument to Establish the Interim Administered Account for Remaining Windfall Gold Sales Profits. - Distribute an amount equivalent to SDR 1.75 billion of the general reserve to all members in proportion to quotas (payment in SDRs or member’s own currency; overdue repurchase members paid in own currency). - Reduce Investment Account investment by SDR 1.75 billion and transfer proceeds to the GRA for immediate use. - Effectiveness conditional on Managing Director’s notification that satisfactory financing assurances for at least SDR 1.575 billion exist, based on (a) written transfer requests from members, (b) other new contributions provided, and (c) written assurances of future contributions. ### Instrument to Establish the Interim Administered Account — governance highlights - Unit of account: SDR. - Resources in SDRs or currencies as paid to contributing member by the Fund. - On contributor instruction, Fund to transfer resources attributable to that member (including pro rata investment returns) to PRGT Subsidy Accounts or as specified. - Investments permitted in: - Marketable obligations issued by international financial organizations denominated in SDRs or member currency. - Marketable obligations issued by a member or national official financial institution denominated in SDRs or member currency. - Deposits with commercial banks, national official financial institutions, or international financial institutions denominated in SDRs or member currency. - Assets kept separate from other Fund accounts; separate financial records and financial statements required, audited by external audit firm selected under Section 20 of By-Laws. - No charge for Fund’s administrative services; all investment costs borne by and deducted from the Account. - Termination: three years from effective date or as promptly as practicable after receipt of instructions from every contributing member, whichever earlier. - Amendments require Fund decision with concurrence of each contributing member with resources remaining in Account. ### Staff reporting and communications - Managing Director to send letters to all members seeking commitment that distributed resources or broadly equivalent amounts would be contributed for PRGT subsidies. - Staff to periodically update Executive Board on progress towards obtaining satisfactory assurances of at least SDR 1.575 billion in PRGT contributions. - Board to be notified prior to distribution becoming effective, as required by the decision. --- ### Illustrative possible distribution (key figures from Table 2) - Total possible distribution: "1,750" (reported in millions of SDRs). - Total quotas (sum reported): 238,116.4 - Total percent of quota: 100.00 - Select member examples (Quota / Percent of Total Quota / Possible Distribution): - Afghanistan, Islamic Republic of: 161.9 0.07 1.19 - Australia: 3,236.4 1.36 23.79 - Belgium: 4,605.2 1.93 33.85 - Canada: 6,369.2 2.67 46.81 - China: 9,525.9 4.00 70.01 - France: 10,738.5 4.51 78.92 - Germany: 14,565.5 6.12 107.05 - India: 5,821.5 2.44 42.78 - Japan: 15,628.5 6.56 114.86 - United Kingdom: 10,738.5 4.51 78.92 - United States: 42,122.4 17.69 309.57 - Notes: - Quota as of September 7, 2012. - Exact distribution amount will depend on quota shares as of the date of effectiveness. - Distribution to members with overdue repurchase obligations to be made in the member's own currency and attributed to Fund holdings subject to repurchase. - Percentage sums may differ due to rounding. --- *Source: Executive Summary and selected excerpts from IMF document _091712 (Proposal to Distribute Remaining Windfall Gold Sales Profits and Strategy to Make the Poverty Reduction and Growth Trust Sustainable).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Key proposal - Distribute the remaining gold sales windfall profits of SDR 1.75 billion to the membership as part of a strategy to facilitate subsidy resources to ensure the longer-term sustainability of the PRGT. - The distribution would follow the indirect approach used for the partial distribution of SDR 0.7 billion (approved February 2012) and would be effected only after members provide satisfactory assurances that new amounts equivalent to at least 90 percent of the amount distributed—i.e., SDR 1.575 billion—will be transferred, or otherwise provided, to the PRGT. ### Summary of Directors’ views and context - During the Review of LIC facilities (September 6, 2012), most Directors supported, or were open to, using resources linked to the remaining windfall gold sales profits as part of a strategy to make the PRGT self-sustainable over the longer term, possibly supplemented by contingent measures, including suspension of the reimbursement of the GRA for the cost of administering the PRGT and/or bilateral fundraising. - Alternatives previously considered included: (i) adding the resources to precautionary balances, and (ii) investing them in the Investment Account’s endowment. Directors expressed a wide range of views on these options; arguments in favor of other options remain valid, and the proposed distribution entails some risks. - The remaining windfall profits have been held in the Investment Account pending an Executive Board decision. Previously, SDR 4.4 billion of total gold sales profits were placed in the special reserve (not available for distribution) and SDR 2.45 billion were placed in the general reserve pending further Board discussions. ### Immediate operational condition for distribution - The proposed distribution will be effected only after members have provided satisfactory assurances that new PRGT subsidy contributions equivalent to at least 90 percent of the amount distributed (SDR 1.575 billion) will be transferred or otherwise provided to the PRGT. ### Impact on Fund reserves and precautionary balances - Distribution of the remaining gold sales windfall profits would reduce the Fund’s general reserve, but would not reduce the current level of precautionary balances. --- ### I. Introduction and Background - Objective: Propose distribution of the remaining SDR 1.75 billion “windfall” profits from gold sales to facilitate subsidy contributions to boost the long-term sustainability of the Fund’s concessional lending capacity. - Background facts preserved from prior decisions: - 2009–10 gold sales resulted in total profits of SDR 6.85 billion. - SDR 4.4 billion placed in the special reserve (not available for future distribution). - SDR 2.45 billion placed in the general reserve pending further Board discussions; policy/analytical treatment has not included these reserves in the Fund’s precautionary balances. - Previous partial distribution: Executive Board approved partial distribution equivalent to SDR 0.7 billion in February 2012 to facilitate contributions of SDR 0.5–0.6 billion (in end-2008 NPV terms) for the PRGT; distribution contingent on Managing Director’s assessment that at least SDR 0.630 billion in new subsidy financing assurances exist. - Progress on the SDR 0.7 billion distribution pledges (as of September 14, 2012): - 123 members confirmed intention to contribute their share or an equivalent amount as subsidy resources to the PRGT, representing 86.62 percent of the approved distribution. - Of these 123 members: - 92 members (64.0 percent of the distribution) confirmed direct transfer of their share to PRGT subsidy accounts. - 17 members (9.6 percent) requested transfer to the Interim Administered Account pending domestic processes. - 11 members (17.7 percent) requested transfer to their SDR accounts, pledging to make an equivalent PRGT subsidy contribution. - Reaching the agreed threshold of 90 percent remains an urgent priority. --- ### II. A Self-Sustained PRGT and Financial Impact of the Proposal ### Current and projected lending capacity - The 2009 LIC financing package aimed to increase concessional lending capacity to SDR 11.3 billion during 2009–14. - Taking into account commitments of SDR 6.9 billion made under new PRGT arrangements during 2009–12, the PRGT has a remaining lending capacity of about SDR 2.2 billion annually through 2014. - In the absence of additional resources, a self-sustained PRGT relying solely on remaining Trust resources would have the capacity to subsidize permanently annual commitments of about SDR 0.73 billion (projections assume resumption of GRA reimbursement for PRGT administration from FY 2013). - Staff longer-term projections of demand: - Projected longer-term demand for concessional lending could on average be in the range of SDR 1.2–1.9 billion annually in the two decades from 2014. - In the first decade, demand is projected to be in the range of SDR 1.0–1.7 billion annually. - These projections exceed the projected self-sustained capacity of SDR 0.7 billion, implying large reductions in access after 2014 unless new concessional resources are identified. ### Effect of using remaining windfall profits to facilitate PRGT subsidy contributions - If 90 percent of the remaining gold sale windfall profits are pledged to the PRGT as subsidy resources, adding SDR 1.575 billion to PRGT resources would: - Increase estimated self-sustaining capacity of the Trust to about SDR 1.1 billion annually from 2015 (if new commitments averaged SDR 2.2 billion annually in 2013–14). - Taking account of remaining capacity under the 2009 LIC financing package, the self-sustaining capacity would be about SDR 1¼ billion from 2013. - The staff identifies SDR 1¼ billion in annual lending capacity as a base envelope for a self-sustained PRGT under the enhanced scenario. ### PRGT Reserve Account (RA) and methodology highlights - Reserve Account balance: SDR 3.9 billion at end-June 2012, representing about 74 percent of total PRGT obligations and providing a loan coverage ratio of about 40 percent in the medium term (in line with historical average). - Estimation of self-sustained capacity is sensitive to assumptions including: - Start date of self-sustained operations; - Reimbursement cost to the GRA for administering the PRGT; - Interest rate paid to PRGT lenders; - Investment premium (excess of interest earned on RA investments over the rate paid to lenders); - Composition of lending arrangements (shares of ECF, SCF, and RCF). --- ### III. Proposed Strategy to Make the PRGT Sustainable ### Core elements (three pillars) - Pillar 1 — Base envelope: - Establish a base envelope of about SDR 1¼ billion in annual PRGT lending capacity expected to cover concessional financing needs over normal periods. - Under this framework, PRGT subsidy accounts would be gradually drawn down to zero while RA balances grow and later subsidize concessional lending. - The base envelope permits inter-year smoothing: build up capacity in low-lending years and draw down in high-lending years. - Pillar 2 — Contingent measures: - Activate contingent measures when average financing needs exceed the base envelope by a substantial margin for an extended period. Possible measures include: - Bilateral fundraising efforts supported by a broad range of membership, including contributions from traditional and non-traditional donors. - Suspension for a limited period of the reimbursement of the GRA for PRGT administrative expenses (pursuant to Executive Board Decision No. 14093-(08/32), adopted April 7, 2008), which specifies suspension when PRGT resources are likely insufficient and additional subsidy resources cannot be obtained. - Modifications of access, blending, interest rate and eligibility policies to reduce subsidy needs. - Semi-annual PRGT financing update papers and future reviews of LIC facilities will provide updates and triggers for activation. - Pillar 3 — Principle of self-sustainability: - Future modifications to LIC facilities should be designed so that demand for IMF concessional lending can be met with resources available under the first and second pillars across a plausible range of scenarios. - Upcoming reviews (e.g., PRGT eligibility, second stage review of facilities) should ensure that combined modifications keep demand consistent with available resources over the longer term. ### Robustness and contingencies - The proposed strategy is expected to be robust under a wide range of demand scenarios for the short, medium, and longer term. - Contingent measures provide flexibility to respond to prolonged periods of demand substantially above the base envelope. --- *Source: Executive Summary (pages 2–9) of the IMF document on the proposed distribution of remaining windfall gold sales profits (SDR 1.75 billion).* ### 12. This strategy is expected to make the PRGT sustainable under a wide range of ### _091712 - 12. This strategy is expected to make the PRGT sustainable under a wide range of ### PRGT sustainability assessment - The strategy is expected to make the PRGT sustainable under a wide range of demand scenarios for the short, medium, and longer term. - If total financing needs remained at the average level seen since the peak of the crisis in 2009 and absent a systemic shock or exceptional needs of individual members: - The base envelope is likely to cover the needs in 2013–14, as well as in 2015–24, where demand is projected to be in the range of SDR1.0–1.7 billion. - In the event demand substantially exceeds the base envelope for an extended period (e.g., global or regional crises): - Contingent mechanisms would be used to maintain self-sustaining capacity at the base level of SDR 1¼ billion; these could include a combination of bilateral fundraising efforts and suspension of reimbursements to the GRA. - If financing needs are even higher, policies on access, blending, and interest rates could be reviewed alongside PRGT eligibility to reduce the need for subsidy resources and better target existing resources. - New concessional commitments during 2010–12: - SDR 1.5 billion on an annual average basis. - SDR 1.3 billion not counting the large request from Bangladesh. - Looking ahead: - Total financing needs expected to be broadly stable in nominal terms over the next decade. - Nominal financing needs expected to be somewhat higher in 2025–34, with greater uncertainty depending on timing of graduation. ### Wider burden sharing and windfall gold sales profits - Proposed approach provides for wider burden sharing of PRGT subsidy costs via increased resources facilitated by distribution of remaining windfall gold sales profits. - The nature of the operation would ensure broad burden sharing based on members’ quotas. - Shift to self-sustaining operations expected to result in limited, temporary recourse to future bilateral fund-raising; contributions would be sought from a wide range of the membership if needed. ### Financial implications for the Fund — overview - Three primary options for use of the SDR 1.75 billion remaining windfall gold sales profits were considered: 1. Distribute resources to facilitate PRGT subsidy contributions (proposed). 2. Count resources towards precautionary balances. 3. Invest resources as part of the Investment Account’s endowment. - In April the Board increased the indicative medium-term target for precautionary balances from SDR 15 billion to SDR 20 billion. - The new medium-term indicative target of SDR 20 billion is expected to be reached in FY 2018. - Distributing a portion of the general reserve attributed to remaining windfall profits as part of PRGT strategy would not reduce current precautionary balances, because that portion does not count towards precautionary balances. - Counting the remaining windfall profits in precautionary balances would have allowed reaching the SDR 20 billion target one year earlier (FY 2017), but Directors considered the current pace adequate and to be kept under close review. ### Reserve, endowment, and income considerations - Proposed distribution would reduce the Fund's general reserve (available for financial losses), which could have broader consequences if financial risks materialize. - Example: If additional reserves were needed, this could require an increase in the rate of charge and/or surcharges applied to borrowing members. - A 50 basis point increase in the margin for the rate of charge would, assuming full disbursement of approved access under arrangements approved to date, generate an additional SDR 1.75 billion in reserves over a period of about four years. - Adding remaining windfall profits to the endowment: - Endowment currently set at SDR 4.4 billion. - Adding remaining windfall profits would increase endowment to SDR 6.1 billion (about a 40 percent increase). - Would reinforce new income model principles given uncertain prospects for investment returns. - Most Directors considered it appropriate to retain long-term capital market assumptions to guide portfolio design despite near- to medium-term difficulty achieving a 3 percent real return target. - Fund’s income outlook: - Broadly positive and projected to remain so in the medium term. - Short and medium term income bolstered by strong demand for Fund financing. - Illustrative estimates of the long-run income-expenditure position in a post-crisis environment—assuming an endowment of SDR 4.4 billion—also remain broadly balanced. ### Strategic trade-offs and timing - Any option entails risk and valid arguments exist for alternative uses of the resources given Fund uncertainties. - Fund capacity to support low-income members will decline sharply in the near future absent a decision to distribute resources linked to remaining gold sales windfall profits to facilitate PRGT subsidy contributions. - Important to address PRGT financing needs now because of substantial lead time involved in implementing the proposed strategy. ### The proposed distribution — legal framework - Staff proposes a distribution to members using the remaining portion of gold sales windfall profits placed in the general reserve. - Resources in the General Resources Account (GRA) are uniformly available to all members and cannot be transferred directly to the PRGT for only low-income members; therefore an indirect mechanism is required. - Two basic implementation options (both require indirect mechanism and distribution to all members in proportion to quotas): 1. Distribution of net income from a particular year per Article XII, Section 6(a). 2. Distribution from the general reserve pursuant to Article XII, Section 6(d) — staff proposes this latter option. - Article XII, Section 6(d) specifics: - Fund may decide at any time to distribute part of the general reserve. - Distribution must be made to all members in proportion to their quotas on the date of distribution. - Distribution requires Executive Board approval by a 70 percent majority of total voting power. - Article XII, Section 6(e) specifies distribution is to be made in SDRs, unless the Fund or the member decides it be made in the member’s own currency. - The portion of reserves attributable to gold sales windfall profits has been excluded from precautionary balances. ### Funding the distribution - Proposed distribution of SDR 1.75 billion to be funded through a partial reduction of amounts (representing GRA reserves) placed in the Investment Account (IA). - Reduction in IA principal requires Executive Board decision with 70 percent majority of total voting power pursuant to Article XII, Section 6(f)(vi). - Reduction would take place only after assurances threshold for contributions has been reached. - Once assurances in place, IA currencies would be transferred to the GRA pursuant to Article XII, Section 6(f)(ix), which provides that resources resulting from reduction of IA investment are to be transferred to the GRA for immediate use in operations and transactions; covered operations include distributions of the general reserve to members. - Distribution to members with overdue repurchase obligations to the GRA would be made in the member’s own currency; corresponding reduction in Fund holdings of that currency would be attributed to holdings subject to repurchase and would reduce the member’s overdue obligations. ### Adequate assurances required - Distribution contingent on strong ex-ante assurances from membership regarding new PRGT subsidy contributions. - Distribution effected once satisfactory assurances received that new PRGT subsidy contributions equivalent to 90 percent of the distribution (SDR 1.575 billion) are being made available. - Managing Director would inform the Executive Board once assurances received; actual distribution effected thereafter. - Timing of distribution uncertain and depends on pace at which members provide satisfactory assurances. ### Modalities for distribution and receipt of PRGT contributions - Distribution would use same modalities as earlier partial distribution of SDR 0.7 billion of the general reserve attributed to gold sales windfall profits. - Options for members: - Instruct the Fund that their share in the distribution be transferred directly to the General Subsidy Account of the PRGT or to one of three facility-specific subsidy accounts (the ECF Subsidy Account, the SCF Subsidy Account, and the RCF Subsidy Account) as a contribution from the member. - Have their share made directly to them before making new contributions, or indicate they do not wish to contribute any portion to PRGT subsidies. - Specify that their share be allocated to more than one of the above purposes. - If members do not respond by the effective date, default deposit to their SDR account. - Establishment of a new administered account to facilitate contributions: - Interim Administered Account for Remaining Windfall Gold Sales Profits (the “Administered Account”) proposed pursuant to Article V, Section 2(b). - Purpose: temporarily hold members’ distributions upon request (e.g., pending domestic processes needed for members to make PRGT subsidy contributions). - At member’s request, share can be transferred at any time as directed, including direct transfers from the Administered Account to one or more PRGT subsidy accounts. - Fund would authorize use of SDRs in connection with Administered Account operations. - Administered Account would remain open for three years, or until no contributor resources remain, whichever is earlier. - Its resources could be invested, at the Managing Director’s discretion, following same investment authority and procedures as PRGT-held resources. - Administered Account would be subject to additional standard terms for similar Fund-administered financial services accounts. - Board notification and effectiveness: - Key terms (including distribution and transfer from IA) become effective only when the Managing Director notifies the Executive Board that, in her assessment, satisfactory financing assurances exist regarding at least SDR 1.575 billion for new PRGT subsidy contributions. - In assessing satisfactory assurances, the Managing Director would consider: - (i) amounts members have requested in writing be transferred as PRGT subsidy contributions from their share of the distribution; - (ii) amount of other new contributions members have provided as PRGT subsidy contributions in light of the decision; - (iii) amount of other PRGT contributions members have given written assurances they will provide in light of the decision. *Source: Excerpt from IMF document _091712* ### 29. Following approval of the decision, all members will receive a letter from the ### _091712 - 29. Following approval of the decision, all members will receive a letter from the ### Proposed Decision — core actions - The Executive Board is invited to adopt the decision by a 70 percent majority of the total voting power. - Key adoptive actions: - The Fund adopts the Instrument to Establish the Interim Administered Account for Remaining Windfall Gold Sales Profits (the “Administered Account”). - Prescriptions under Article XVII, Section 3: - (a) An SDR Department participant or prescribed holder, by agreement with an SDR Department participant or prescribed holder and at the instruction of the Fund, may transfer SDRs to that participant or prescribed holder in effecting a transfer to or from the Administered Account or in effecting a payment due to or by the Fund in connection with financial operations under the Administered Account. - (b) Operations pursuant to these prescriptions shall be recorded in accordance with Rule P-9. - Distribution and transfers: - An amount equivalent to SDR 1.75 billion of the general reserve shall be distributed to all members in proportion to their quotas (payment in SDRs or a member’s own currency; payment to a member with overdue repurchase obligations in the General Resources Account shall be made in the member’s own currency). - The Fund decides to reduce the amount of investment in the Investment Account by an amount equivalent to SDR 1.75 billion and to transfer the proceeds from this reduction to the General Resources Account for immediate use in the Fund’s operations and transactions. - Effectiveness condition (paragraph 5): - Paragraphs 1 through 4 become effective when the Managing Director notifies the Executive Board that, in her assessment, satisfactory financing assurances exist regarding the availability of at least SDR 1.575 billion for new subsidy contributions to the Poverty Reduction and Growth Trust (PRGT) based upon: - (a) the amount that members have requested in writing be transferred as subsidy contributions to the PRGT from their share in the partial distribution of the general reserve provided for in paragraph 3; - (b) the amount of other new contributions that members have provided as subsidy contributions to the PRGT in light of this decision; and - (c) the amount of other subsidy contributions that members have given written assurances that they will provide to the PRGT in light of this decision. - Staff reporting obligations: - Members will receive a letter from the Managing Director seeking their commitment that distributed resources or broadly equivalent amounts would be contributed for PRGT subsidies. - Staff will periodically update the Executive Board regarding progress towards obtaining satisfactory assurances of PRGT contributions in the minimum amount specified in the decision. - The Board will be notified prior to the distribution becoming effective, as required under paragraph 5 of the decision. ### Instrument to Establish the Interim Administered Account — purpose and governance - Purpose: - Serve as an interim vehicle for holding and administering contributions representing all or a portion of members’ shares of the partial distribution of the general reserve provided for in Decision No. ______, pending instruction from each contributing member as to subsequent disposition. - Unit of account and resources: - The SDR shall be the unit of account. - Resources provided to the Account shall be in SDRs or currencies as paid to the contributing member by the Fund in the context of the distribution of the general reserve. - Transfers on instruction: - Upon instruction of a contributing member, the Fund shall transfer all or part of the resources in the Account attributable to that member, including the member’s pro rata share of any investment returns, to one or more of the Subsidy Accounts of the PRGT, or as otherwise specified by the member. - Investments and custodial arrangements: - Resources not immediately needed shall be invested at the discretion of the Managing Director in any of the following: - (i) marketable obligations issued by international financial organizations and denominated in SDRs or in the currency of a member of the Fund; - (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; - (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution denominated in SDRs or in the currency of a member. - The Managing Director is authorized to make all arrangements, including establishment of accounts with depositories, and to take measures necessary to implement the Instrument. - Separation of assets and liabilities: - Assets held in the Account shall be kept separate from assets and property of all other Fund accounts; assets of other accounts shall not be used to discharge liabilities or losses of this Account and vice versa. - Accounting and audit: - The Fund shall maintain separate financial records and prepare financial statements for the Account expressed in SDRs and prepared in accordance with International Financial Reporting Standards. - The external audit firm selected under Section 20 of the Fund’s By-Laws shall audit the operations and transactions of the Account; the audit shall relate to the financial year of the Fund. - The Fund shall report on the assets, property, operations and transactions of the Account in the Annual Report of the Executive Board to the Board of Governors and shall include the audit report of the external audit firm on the Account. - Charges and costs: - No charge shall be levied for services rendered by the Fund in administration, operation, and termination of the Account. - All investment costs, including costs associated with exchange of currencies, purchase of securities, and hiring of external asset managers and custodian banks, shall be borne by, and deducted from, the Account. ### Termination and amendment provisions - Termination: - The Account shall be terminated: - (a) three years from the effective date of the decision adopting this Instrument, or - (b) as promptly as practicable following the receipt of instructions from every contributing member regarding the distribution of its resources in the Account, - whichever is earlier. - In the event of termination pursuant to (a), each Participant with resources remaining in the Account at the time of termination shall have paid in full to it the amount of such resources. - Amendments: - Provisions of this Instrument may be amended by a decision of the Fund with the concurrence of each contributing member with resources remaining in the Account at the time of such decision. - Dispute settlement: - Any questions arising under this Instrument between a contributing member and the Fund shall be settled by mutual agreement between the contributing member and the Fund. ### Possible distribution of SDR 1.75 billion — key figures from Table 2 - Total possible distribution: SDR 1,750 (In millions of SDRs reported as "1,750") - Total quotas (sum reported): 238,116.4 - Total percent of quota: 100.00 - Select member entries (Quota / Percent of Total Quota / Possible Distribution): - Afghanistan, Islamic Republic of: 161.9 0.07 1.19 - Australia: 3,236.4 1.36 23.79 - Belgium: 4,605.2 1.93 33.85 - Canada: 6,369.2 2.67 46.81 - China: 9,525.9 4.00 70.01 - France: 10,738.5 4.51 78.92 - Germany: 14,565.5 6.12 107.05 - India: 5,821.5 2.44 42.78 - Japan: 15,628.5 6.56 114.86 - United Kingdom: 10,738.5 4.51 78.92 - United States: 42,122.4 17.69 309.57 - Notes associated with Table 2: - 1/ Quota as of September 7, 2012. - 2/ The exact amount of the distribution will depend on the quota shares as of the date of effectiveness of the decision. - 3/ Owing to member's overdue repurchase obligations to the Fund, proposed distribution would be made in the member's own currency and the use of the member's currency would be attributed to Fund holdings of the member's currency subject to repurchase. - 4/ "This figure may differ from the sum of the percentages shown for individual countries because of rounding." ### Appendix I — Sample communications from members (summary) - Sample Communication No. 1: - For members requesting transfer to one or more PRGT Subsidy Accounts of all or a portion of their share in the distribution of the general reserve. - Sample Communication No. 2: - For members requesting transfer to the Interim Administered Account for Remaining Windfall Gold Sales Profits of all or a portion of their share; includes an intention statement to provide an equivalent amount to a PRGT Subsidy Account following resolution of domestic processes. - Sample Communication No. 3: - For members who do NOT request transfer to the PRGT or the Interim Administered Account and who request transfer to the member’s SDR Account (or designated currency account); may include a pledge to provide to the PRGT an amount equivalent to the distribution or to SDR -------. - Administrative note: - Communication of pledges should come from the Fund governor or their authorized agent. Prior to implementation the Fund will confirm the transaction with the fiscal agent through an authenticated means of communication, using the normal procedures employed for Fund financial transactions. *Document: Proposal to Distribute Remaining Windfall Gold Sales Profits and Strategy to Make the Poverty Reduction and Growth Trust Sustainable (excerpts as provided).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_091712.pdf_